A STUDY ON CAPITAL BUDGET WITH REFERENCE TO FLSMIDTH

PRIVATE LIMITED

Submitted in partial fulfillment of the requirements for the award of Degree in

MASTER OF BUSINESS ADMINISTRATION

by
HARISHMA.R
Register No.41410120

DEPARTMENT OF BUSINESS ADMINISTRATION

SCHOOL OF MANAGEMENT STUDIES

SATHYABAMA
INSTITUTE OF SCIENCE AND TECHNOLOGY
(DEEMED TO BE UNIVERSITY)
Accredited with Grade “A” by NAAC I 12B Status by UGC I Approved by AICTE
JEPPIAAR NAGAR, RAJIV GANDHI SALAI, CHENNAI -600119

MAY 2023
 SATHYABAMA
INSTITUTE OF SCIENCE AND TECHNOLOGY
(DEEMED TO BE UNIVERSITY)
Accredited with “A” grade by NAAC I 12B Status by UGC I Approved by AICTE
Jeppiaar Nagar, Rajiv Gandhi Salai, Chennai-600119
www.sathyabama.ac.in

SCHOOL OF MANAGEMENT STUDIES

BONAFIDE CERTIFICATE

This is to certify that this Project Report is the bonafide work of HARISHMA.R
41410120 who carried out the project entitled “A Study on Capital Budget with
Reference to FLSMIDTH Private Limited” under my supervision from January 2023
to March 2023.

Dr. Umamaheswari S
Internal Guide External Guide

Dr. BHUVANESWARI .G
Dean – School of Management Studies

Submitted for Viva voce Examination held on 05/05/2023

Internal Examiner External Examiner

2
 DECLARATION

HARISHMA.R (41410120) hereby declare that the Project Report entitled “A Study
On Captial Budget With Reference to FLSMIDTH Private Limited” done by me
under the guidance of Dr.Umamaheswari.S is submitted in partial fulfillment of the
requirements for the award of Master of Business Administration Degree.

DATE:05/05/2023

PLACE:Chennai HARISHMA.R
 ACKNOWLEDGEMENT

I am pleased to acknowledge my sincere thanks to the Board of Management of

SATHYABAMA For their kind encouragement in doing this project and for completing
it successfully. I am grateful to them.

I Convey my sincere thanks to DR. Bhuvaneswari.G, MBA,.Ph.D., Dean – School of

the Management Studies and DR. Palani.A, M.Com., MBA., Ph.D Head – School
of the Management Studies for providing me necessary support and details at the
right time during the progressive reviews.

I would like to express my sincere and deep sense of gratitude to my Project Guide
DR.UMAMAHESWARI.S for her valuable guidance, suggestions, and constant
encouragement paved the way for the successful completion of my project work.

I wish to express my thanks to all Teaching and Non-teaching staff members of the
School of Management Studies who were helpful in many ways for the completion
of the project.

HARISHMA.R
 TABLE OF CONTENTS

CHAPTER NO. CONTENTS PAGE NO.

ABSTRACT (i)

LIST OF TABLES (ii)

LIST OF CHART (iii)

1 INTRODUCTION

1.1 Introduction 1

1.2 Industry Profile 7

1.3 Company Profile 11

1.4 Objectives of the Study 17

1.5 Need for the Study 17

1.6 Scope of the Study 18

2 REVIEW OF LITERATURE

2.1 Review of Literature 19

3 RESEARCH METHODOLOGY

3.1 Methodology 29

3.2 Research Design 29

3.3 Sources of Data 30

3.4 Methods Used for the Study 30

3.5 Tools Used for the Study 35

4 DATA ANALYSIS AND INTERPRETATION

4.1 Payback Period 36

4.2 Accounting Rate of Return 38

 4.3 Net present value 40

5 FINDING, SUGGESTIONS, AND CONCLUSION

5.1 Findings of the Study 43

5.2 Suggestion 44

5.3 Limitations of the Study 45

5.4 Conclusion 46

REFERENCE 47

BALANCE SHEET 48
 TABLE CONTENTS

S.NO CONTENTS PAGE NO.

1 PAYBACK PERIOD 36

2 ACCOUNTING RATE OF RETURN (ARR) 39

3 41
NET PRESENT VALUE
 CHART CONTENTS

S.NO CONTENTS PAGE NO.

1 PAYBACK PERIOD 38

2 ACCOUNTING RATE OF RETURN (ARR) 40

 ABSTRACT

The main task of financial management is to choose the best results from the
investment, and this is the most important decision for the finance manager because
any decision made by the president in this regard can affect the operations of the
company and its profits for many years.

The purpose of the research is to examine the decisions of companies in the financial
investment process by examining the importance of capital investment in organizations
and to determine the sources of financial capital in which the company will be well
invested in various ways. business decisions. It also provides information on cash flow
and cash flow for each year.

Thus, the comparison gives a clear idea of the investment and return that will be useful
for the next year. The analysis is based on data collected from the Income and
Expense Report and the Business Report.

Financial resources such as present value, rate of return, and method of repayment
over time are used in the analysis of the collected data. Some other estimation tools
such as standard deviation, correlation analysis, and analysis of variance were also
used in this study.
 CHAPTER I

INTRODUCTION

1.1 INTRODUCTION OF THE STUDY:

Capital budgeting, also known as "investment analysis," is a planning process used to

determine the long-term capital expenditures an organization must make.

Investment financing involves selecting projects that will add value to the company.
This can include just about anything from acquiring more land to buying a new car or
replacing an old machine. Businesses, especially corporations, are often required, or
at least approved, to carry out activities that increase profits and therefore the wealth
of their owners.

When a company is faced with a financial decision, one of its first tasks is to
determine whether the project will be profitable.Net present value (NPV), rate of return
(ARR), and payback period (PB) methods are the most commonly used methods for
project selection.

While the best investment solution is one where all three metrics show the same
decision, this process often leads to conflict.

According to management preferences and selection criteria, there should be more

guidance for one method than the other. However, these measurements are widely
used to indicate strengths and weaknesses.

A company's capital budgeting decisions may consist of several discrete decisions,

each of which is referred to as a project. A capital budget is a set of assets that depend
on each other and are considered together. Suppose a company is considering the
possibility of producing a new product. He has to decide whether to produce this new
product or not. This capital project entails acquiring land, constructing facilities, and
purchasing manufacturing equipment. And the project may require the company to
increase its investment in working capital, such as inventory, cash, or receivables.

1
Working capital is a collection of assets required for day-to-day operations that support
a company's long-term investments.

Nature of capital investment financing:

Investment financing is a process in which investment decisions are made through

the use of capital. Capital expenditures can be defined as expenditures that are
expected to be profitable for more than one year.

The main feature of capital expenditures is that the expenditure is realized at once
and the expenditure results are obtained at a different point in the future. In simple
terms, we can say that capital expenditure is an expenditure on the acquisition or
improvement of fixed assets, the benefits of which are expected to be received in the
next year.

The following are some examples of capital expenditure:

(1) Costs associated with acquiring fixed assets such as land and buildings,
factory and machinery, and goodwill.

(2) Cost of adding, expanding, improving, or replacing fixed assets.

(3) Changing the value of fixtures.

(4) R&D project expenses etc.

Capital expenditure will not change long-term financial commitments.

For this reason, investment decisions are also called long-term investment decisions.
Investment financing involves planning and managing the use of capital. It is the
process of deciding whether to make a long-term commitment to certain resources

2
whose benefits will be seen over a period of more than one year. Investment finance
is also known as investment decision-making, investment planning, and investment
analysis.

Horngreen defines equity investment as: "An equity investment is a long-term plan for
the creation and use of funds by financial means."

G.C. "Investment financing involves apportioning the company's financial deficit

among business opportunities. Decision-making involves comparing the project's
expected future benefits with the immediate and subsequent benefits of the project
and the immediate and post-flow use of the project," says Philippatos.

Richard and Greenlaw refer to mutual funds as investments that provide long-term
returns. In the words of

Lynch, "Investing in capital involves preparing resources that can yield long-term
economic benefits."

From the above description, it may be concluded that the important features
which distinguish Capital Investment budgeting decisions from ordinary day-to-
day business decisions are:

(1) Investment decisions involving swapping available funds for future benefits;

(2) Future benefits must be received within a few years;

(3) Funds invested in long-term projects;

(4) The results of the business have a long and significant impact;

(5) The amount is generally large;

(6) Are irrevocable decisions.

(7) Large sums are "judgmental" investments that differ from the company's past
practices and are not "tactical" investment decisions where significant changes in the

3
company's expected returns are associated with relatively high risk. Calculate the
amount that will not cause the product to deviate from the company's past practices.

Need and Importance of Capital Budgeting:

Capital budgeting means planning for capital assets.

Capital budgeting decisions are vital to any organization as they include the
decisions:

(a) Whether or not funds should be invested in long-term projects such as the setting
of an industry, purchase of plant and machinery, etc.

(b) Analyze the proposal for expansion or creating additional capacities.

(c) To decide the replacement of permanent assets such as buildings and equipment.

(d) To make a financial analysis of various proposals regarding capital investments to

choose the best out of many alternative proposals.

The importance of Capital Investment budgeting can be well understood from the fact
that an unsound investment decision may prove to be fatal to the very existence of the
concern.

The need, significance, or importance of Capital budgeting arises mainly due to

the following:

(1) Large Investments:

Capital budgeting decisions, generally, involve large investments of funds. But the
funds available with the firm are always limited and the demand for funds far exceeds
the resources. Hence, a firm needs to plan and control its capital expenditure.

(2) Long-term Commitment of Funds:

Capital expenditure involves not only large amounts of funds but also funds for the
long term or more or less permanently. The long-term commitment of funds increases

4
the financial risk involved in the investment decision. The greater the risk involved, the
greater the need for careful planning of capital expenditure, i.e. Capital budget.

(3) Irreversible Nature:

Capital expenditure decisions are irreversible. Once the decision for acquiring a
permanent asset is taken, it becomes very difficult to dispose of these assets without
incurring heavy losses.

(4) Long-Term Effect on Profitability:

Capital Investment budgeting decisions have a long-term and significant effect on the
profitability of a concern. Not only the present earnings of the firm are affected by the
investments in capital assets but also the future growth and profitability of the firm
depend upon the investment decision taken today. An unwise decision may prove
disastrous and fatal to the very existence of the concern. Capital Investment budgeting
is of utmost importance to avoid over-investment or under-investment in fixed assets.

(5) Difficulties of Investment Decisions:

The long term investment decisions are difficult to be taken because:

(i) Decision extends to a series of years beyond the current accounting period,

(ii) Uncertainties of the future and

(iii) A Higher degree of risk.

(6) National Importance:

Investment decision though taken by individual concern is of national importance

because it determines employment, economic activities, and economic growth. Thus,
we may say that without using Capital Investment budgeting techniques a firm may
involve itself in a losing project. Proper timing of purchase, replacement, expansion,
and alternation of assets is essential.

5
Limitations of Capital budget:

Capital budgeting techniques suffer from the following limitations:

(1) All the techniques of Capital Investment budgeting presume that various
investment proposals under consideration are mutually exclusive which may not
practically be true in some particular circumstances.

(2) The techniques of Capital Investment budgeting require the estimation of future
cash inflows and outflows. The future is always uncertain and the data collected for
the future may not be exact. Obliviously the results based on wrong data may not be
good.

(3) There are certain factors like the morale of the employees, goodwill of the firm,
etc., which cannot be correctly quantified but which otherwise substantially influence
the capital decision.

(4) Urgency is another limitation in the evaluation of capital investment decisions.

(5) Uncertainty and risk pose the biggest limitation to the techniques of Capital
Investment budgeting.

6
1.2 INDUSTRY PROFILE

FLSmidth is the full flowsheet technology and service supplier to the global
mining and cement industries.

We help our customers to improve performance, lower operating costs and reduce
environmental impact.

With our Mission Zero program, we have set a target of providing solutions for zero-
emissions mining and zero-emissions cement production by 2030, supporting a green
transition built upon sustainable materials.

Delivering sustainable productivity to the global mining and cement industries

is our primary goal

We can help you to increase output, lower operating costs, and minimize the
environmental impact of your operations. And with our life-cycle approach, we enable
you to reduce the total cost of ownership over the entire life of your plant or mine.

So You can achieve the highest level of sustainable productivity, we offer you full
flowsheet coverage that integrates pioneering products, extensive process know-how,
and end-to-end services – and combines almost 140 years' worth of global experience
with the latest in digital technologies and innovation.

 Aggregates
 Cement
 Chemical
 Food & Pharmaceuticals
 Mining
 Oil & Gas Refining
 Port & Terminals
 Power Utilities
 Pulp & Paper

7
 Steel
 Waste to Energy
 Water Treatment

Aggregates:

Solutions and parts that enhance the productivity of your aggregates operation.

Aggregates are the most extracted material in the world and production is essential to
compete. We help global customers increase efficiency and reduce downtime through
durable materials and products, engineering design, and global customer service and
support.

Cement:

Increase the productivity of your cement plant.

Are you looking for opportunities to invest in a new plant, increase the capacity of an
existing plant, or increase productivity? As a complete flow chart supplier with over
135 years of experience in the cement industry, we are here to assist you throughout
the entire life cycle of your plant.

Chemicals:

Utilizing synergetic technologies in the chemicals industry.

The many processes and equipment our core industries share with the chemicals
industry mean your chemicals operations can benefit strongly from using our products.
Whether it concerns crushing, grinding, materials handling, drying, separation, or
conveying, we provide premium technologies and solutions.

8
Food And Pharmaceutical:

Creating value in the food and pharmaceutical industries with products from key
industries.

We supply specialist equipment and solutions for the food and pharmaceutical
industries. Our range of premium products provides ideal solutions for material
handling, filtration, and separation. This enables customers to meet or exceed industry
quality standards in the food and pharmaceutical industries.

Mining:

A complete set of the best mining technologies and solutions.

From downhole crushing and delivery to waste management, you can get a complete
set of productive products - mineral processing, technology, and equipment
development. Leverage digitization and the knowledge of the experts we work with to
unlock new talent to make your mining operations profitable and profitable.

Oil And Gas Refining:

Safe and efficient products and solutions for oil and gas refining.

Operations can be more hazardous in the oil and gas refining industry than in other
industries and require equipment featuring the highest level of safety. As most of our
products were conceived in harsh industries, we can provide your operations with high
productivity and stability.

Port And Terminal:

Enhancing productivity in materials handling and logistics.

Through a century of supplying equipment and solutions to the mining industry, we

have achieved a market-leading position for our products. The mining and the port and
terminal industries share many similarities in terms of demands for materials handling.

9
Our experience and expertise in both industries fuel our ambition to be your preferred
productivity provider.

Power Utilities:

Premium solutions for enhanced productivity and sustainability

Facing an ever-increasing demand for power and the obligation to meet strict
environmental regulations, power utilities need to leap forward. We give you the
benefits of our expertise and know-how to meet and even exceed power utilities
industry expectations through the design and supply of equipment and systems
worldwide.

Pulp And Paper:

World-class solutions for quality, productivity, and safety.

The pulp and paper industry is in many ways similar to the cement industry in meetin
g both productivity and high energy consumption. We are the leading manufacturer of
rotary kilns for the pulp and paper industry, providing around 50% of the current
global system.

Steel:

Robust tools and quality control.

FLSmidth, we've been perfecting our technology and products for over a century. Wi
th our strong commitment and expertise in products and services, we support steel in
dustry practices by providing quality products and services that provide durable, sust
ainable cans and stability.

10
Water To Energy:

Core industry competencies, utilized for improved sustainability.

We have gained unique know-how through more than 130 years of designing,
building, and maintaining cement production equipment. Since cement production is
very energy intensive, we have mastered the art of extracting thermal energy from
alternative sources. Today we are bringing this experience to a wide range of
industries.

Water Treatment:

Solving global problems with premium products and innovations.

Water scarcity is a well-known global problem and access to clean drinking water is
a critical issue in developing countries. We take this challenge seriously by providing
state-of-the-art products and solutions to the water treatment industry, contributing to
the construction of new cities and societies around the world.

1.3 COMPANY PROFILE:

Flsmidth Private Limited is a private, non-public company established on April 18,

2000. It is classified as a private limited company and is headquartered in
Kelambakkam, Tamil Nadu.

Has a registered capital of INR 45.20 and a total paid-in capital of INR 27.14.

Flsmidth Private Limited has an operating income of more than INR 500 for the fiscal
year ending 31st March 2022.

Its EBITDA increased by 176.74% compared to the previous year.

Meanwhile, the book network grew by 10.16%.

11
Additional features and resources are available here.

The company provides products and services for design, sales, installation and
maintenance, and engineering for complete automation and control systems for
cement and other industrial processes: metal ore, gold, copper, fertilizer, coal, cement,
mineral processing, and equipment. Handling, Mining Machinery, Mining Equipment,
Slurry Handling, Mining Equipment, Air Pollution Control, Pumps, Automation, and
Laboratory Automation.

Category: Service Provider

Flsmidth Private Limited current status - Active.

According to our information, the last published General Assembly Meeting (Annual
General Assembly) of Flsmidth Private Limited was held on September 30, 2022. In
addition, according to our records, the final balance sheet was prepared on the date
ending on March 31, 2022.

Flsmidth Private Limited has five directors - Arumugam Kulandaivelu Sankar, Aarthi
Yuvaraj, and others.

The Corporate Identification Number (CIN) of Flsmidth Private Limited is

U26941TN2000PTC044765. The registered office of Flsmidth Private Limited is at
FLSMIDTH PRIVATE LIMITED, "FLSMIDTH HOUSE" 34, EGATOOR, RAJIV
GANDHI SALAI, KELAMBAKKAM, Tamil Nadu.

FLSmith and Co. A/S was founded on 2 January 1882 in Copenhagen by Frederik L
aessoe Smidth (da). It started out as a consulting company to,purchase machinery a
nd manufacture small machines for local artisans. Within a few years, the company, t
hen called the "Technical Bureau", specialized in the manufacture of machinery for t
he brick and tile industry.

12
In 1887, two engineers, Poul Larsen,and Alexander Foss, became partners and the
company was renamed F.L. Smith & Co. In 1887 the first FLSmidth cement plant wa
s built near Limhamn, Sweden.

The company grew stronger and opened its first international office in London in 189
0. Later, offices were opened in major cities such as Paris, New York, Tokyo,
and Beijing (Beijing).

In 1957 FLSmidth machines accounted for 40% of all cement production in the world

In 1954, FLSmidth opened its headquarters in Vigerslev Alle on the outskirts of ValbI
in Copenhagen and has become a part of the city with its beautiful red brick building

The building was designed by architect Palle Suenson.

In 2022, FLSmidth announced that it would relocate to its new headquarters in Cope
nhagen, possibly in the second half of 2024. widely distributed in the cement enginee
ring industry, plastic, aerospace, cement building materials, etc.

During the 1990s manufacturers such as Pfister, Ventomatic, and

MAAG Gear were acquired.

In 1990, the group acquired Fuller Corporation and F.L.Smith Fuller Engineering Gro
up. Two mineral processing divisions, Fuller Mineral Processing,and FLSmidth Miner
al Processing were built under FLSmidth and Fuller, respectively.

In 1997, the company changed its name to FFE Minerals after merging its two minin
g divisions into a single company.

13
The process was developed to dissolve and remove organic wood stored in wood usi
ng supercritical carbon dioxide, an alternative to chromium copper arsenate (CCA).

FLS Since the closure of Miljo in 2004, some workers have been involved in similar p
rocesses to,cork 2,4,6-trichloroanisole (TCA) from wine.

In the early 2000s, the group began selling non-essential businesses.

On April 2, 2007, FFE Minerals acquired Rahco International, Inc.

In May 2007, FFE Minerals changed its name to FLSmidth Minerals, on 10 August 2
007, FLSmidth obtained the status of GL14, the largest trading company at that time,
making a steady course in the international copper market.
Between May and October 2008, FLSmidth acquired Pneumapress Inc.
In 2009, FLSmidth acquired Conveyor Engineering Inc.and EEL India Limited on 1 M
arch 2009 and 28 July 2009, respectively.

These acquisitions give FLSmidth the expertise to design and supply large-
scale equipment for the cement, mining, heavy industry,
and packaging industries worldwide.

In 2011 FLSmidth acquired ESSA Australia Limited on 17 February 2011, [19] Phillip
s Kiln Service Ltd on 18 August 2011, and Transweigh India Ltd. on 20 October 2011

On July 3, 2012, FLSmidth completed the acquisition of Australian engineering and e

quipment company Ludowici Limited[22], a provider of coal centrifuges, vibrating scr
eens, and ancillary wear parts, products, and services for the mining industry.

In 2012, FLSmidth acquired Decanter Machine, Inc., a USbased international manuf

acturer of centrifugal equipment for mining (August), TEUTRINE GmbH Industrie-
Technik, a German company of Mobile Solutions specializing in Repair, Service Rep
air,
and Retrofit (September) and Australian service company MIE Enterprises Pty Ltd.

14
To provide construction, commissioning, maintenance,and repair services.

FLSmidth divested capital sales of lime kilns and causticizing equipment for white liq
uor in the pulp and paper industry to strengthen its core business focus on cement a
nd minerals.

Under a license agreement, the business is transferred to Metso Paper Sweden.The

license associated with FLSmidth is perpetual and exclusive.

In 2022, FLSmidth acquired Mining Technologies, the mining division of its largest in
dustrial company, ThyssenKrupp, Germany.

With this, FLSmidth has become the world's leading supplier of technology and servi
ces to the global mining industry. After the Mining Technologies merger, FLSmidth's
mining business grew to 65% of the company's business.

Core Business And Group Strategy:

In 2019, through the sustainability pledge “MissionZero”, FLSmidth committed to

providing technologies to accelerate mining and cement towards zero emissions by
2030. Mining and cement operations have a significant impact on the environment,
contributing approximately 10% of global CO2 emissions.

The company already has much of the technology needed to help both industries
reduce emissions, while new technologies will be developed through R&D
partnerships with customers, universities, start-ups, and companies from different
industries.

In 2021, FLSmidth signed up for the Science Based Targets initiative, gaining
validation for specific sustainability-related targets aligned to the most ambitious
scenario of the 2015 Paris Agreement, which aims to keep global warming below
1.5°C.

15
In 2023, FLSmidth announced the division of its operations into two stand-alone
entities in a so-called “pure play strategy”. The Mining and Cement divisions operate
independently, each with its own business strategy and organizational structure.

FLSmidth & Co. A/S

Type Publicly Traded Aktieselskab

Traded As Nasdaq Copenhagen
Industry Construction Engineering
Founded 1882;141 Years Ago
Founder Frederik Laessoe Smidth
Headquarters Copenhagen, Denmark
Key People Mikko Keto (Group CEO) Tom knutzen ( Chairman)
Products Machinery, Systems, and Services For The Cement and
Mineral Industries
Revenue 21.849 billion (2022)
Net Income 352 million (2022)
Total Asset 29.85 billion (2022)
Total Equity 10.79 billion (2022)
Number Of Employees 10,977 (2022)
Website www.flsmidth.com

16
1.4 OBJECTIVES OF THE STUDY

Primary Objective:

To study the Impact of Capital budget and to evaluate the data of Capital
budgeting techniques in FLSmidth Private Limited.

Secondary Objective

 To study and ensure planning for the future by setting up various budgets.
 To know the Sales budget of the company.
 To analyze the elimination of wastage and increase in profitability.
 To find out the standard deviation for Total assets.

1.5 NEED OF THE STUDY

 Capital budgeting or decisions are of considerable importance to the firm since

they tend to determine its value by influencing its growth, profitability, and risk.

 The process of allocating money to fixed assets is important because it often t

akes a long time and cannot be easily reversed all at once. So we can say tha
t this is an asset allocation process where management has to use financial re
sources to determine which activity will generate more profits over time.

 Companies are in a situation to invest a huge amount of money in order to take

their firm to a greater extent of growth. In this case, they have to take a sound
investment decision among various alternatives.

17
  If the investment decision taken up on a project is not worth undertaking, the
amount invested on a particular project would not generate profit or value rather
it creates a loss to the firm.

 Hence, to increase the wealth and profit of the firm or to avoid loss, a sound
procedure is needed. Thus, the need for Capital budgeting arises.

1.6 SCOPE OF THE STUDY

The study has been undertaken to understand the significance of Capital budgeting
through which to analyze the performance of Capital budgeting.

 The study can help the organization to take investment decisions in forthcoming
years.

 It can be used as a reference.

 It will be helpful for fund allocation.

Capital budgeting is the process of making investment decisions in capital expenditur

es. Capital expenditures can be defined as expenditures that are expected to be prof
itable for more than one year.

18
 CHAPTER II

REVIEW OF THE LITERATURE

2.1 REVIEW OF THE LITERATURE:

(Kengatharan Linesiya 2022), Capital Budgeting Theory and Practice: A Review an

d Agenda for Future Research. Applied Economics and Finance, 3(2), p. 15-
38. The main purpose of this research is to identify the inconsistencies in the current
budget and practices in the last two years, thus laying the groundwork for future scho
larships.

(Sihlaer William W. et al 2022), Financial Management: Policy and Practice, Mumb

ai: Jaico Press, Financial Management aims to assist CEOs of small businesses, es
pecially fast,growing people, to ensure that the company's financial management is r
eliable. has been included. the company's strategy. From the methodology of the bo
ok, all the details were recorded.

(Rakesh HM 2022), A study of capital use in Mumbai,listed companies, nuanced ma

nagement research journal, 2(2), p.15, December March 2012 to March 2013, Resea
rch conducted by Focus on Capital Within the scope of capital budgeting investment.
Budgeting Practices, a questionnaire was sent to 5,163 people responsible for capita
l expenditures in companies listed on the Bombay Stock Exchange.

(Kulkarni P.V. and Satyaprasad B.G. 2022), Financial Management: A Perspective

,Mumbai: Himalaya Press, This book considers investment decisions in the face of ri
sk and uncertainty.The focus is on the type and location of the risk.

19
(Prof. TatikondaNeelakantam 2022), Developments in Capital Budgeting Evaluatio
n Practices: A Conceptual Analysis, 9, p.615, This study explores the evaluation of p
rogress in capital budgeting evaluation practices; From,onwards, all points are well a
nalyzed in this study to find the most efficient way of capital investment. The study co
ncludes that these modern methods are useful in companies' long-term decisions.

(Susan F. Haka, Michigan 2021) "Capital Budgeting and Investment Review" and hi
storical review of current developments in equity investment budgeting and equity inv
estment evaluation educational research. Explain the modern capital investment stra
tegy and methods. In the late 18th and early 19th centuries, the Industrial Revolution
helped create the need for capital investment processes and technologies. Educatio
nal research began in the late 1940s and early 1950s and was divided according to a
ssessment methods decision,making processes, organizational issues, and environ
mental concerns.

Experimental, clinical, workplace, observational,and research’based data are review

ed. His research reflects the findings of educational research and many unresolved i
ssues.

(Mawih Kareem Al,Ani. 2021), A Strategic Plan to Evaluate Oman's Energy, Oil and
Gas Sector’Capital Expenditures Using Payback Period. International Journal of Eco
nomics,and Financial Issues, 5(2), p. 469/475, this research paper examines differen
t organizational strategies,and uses payback periods to evaluate investment from the
point of view of managers and executives.Considerations for investors in Oman.

(Davina F. Jacobs 2021) is a senior economist at the Department of the Treasury a

nd conducts research on investment finance. According to his research, the main ch
allenge of the government budget is to determine the balance between current and c
apital expenditures. Expenditure on government resources is also poorly integrated i
nto the budgeting process in many countries.

20
Therefore, this research is designed to provide an overview of past and present publi
c investment practices.The study will also compare the use of funds in low-
income and developed countries and make several recommendations on how to incr
ease the efficiency of capital planning and financial management in low-
income countries.

(Theory Psaros 2021) states that similar to stakeholder theory, management theory
uses a different perspective from organization theory. For example, management the
ory does not support the idea that people are the most productive resource, nor does
it support the claim that all business decisions are based on financial considerations
Recognizes that some business decisions are based on non-
economic rewards such as social impact.

(Michelon et al., 2020) Researchers interested in CapitalBudget often focus on the

evaluation phase, where most CB publications are based on analysis of Capital
Budget Other activities in the evaluation phase such as identifying positive factors af
fecting CB or decision-making processes such as assigning weights.

(Sizba and Hall, 2020) encourage researchers to participate in the decision-

making phase of the investment process. Guidelines should examine whether mana
gers are ready to use a solid budget.

(Michelon, Lunkes, & Bornia, 2020) Investment decisions today can improve the c
ompany's future results, therefore it is considered one of the most important financial
management decisions.

(Niels Hermes, Peter Smid ,and Lu Yao 2020) Groningen University Faculty of Ma
nagement and Organization and Groningen University Faculty of Economics, Netherl
ands, for "Capital Investment budgeting practices: a comparative study of the Netherl
ands and China". This article compares the use of financial resources by Dutch and

21
Chinese companies using data from a survey of 250 Dutch companies and 300 Chin
ese companies. In order to understand the importance of economic development, it i
s aimed to analyze the capital investment use of the companies of the two countries
comparatively. The empirical analysis provides evidence that Dutch CFOs, on avera
ge, use more capital investment resources than Chinese CFOs. But at the same time
,the results show that the gap between Dutch and Chinese companies is smaller tha
n it should be compared to the difference in the development level of the two countri
es; this is the smallest of the models used to predict price. cost of capital and use of
CAPM as a method for measuring the cost of capital.

(Mbabazize Peter & Daniel Twesige 2020), Equity investment practices in developi
ng countries: Rwanda case, Financial Research Journal, 2(3), p. 1-
19, This paper looks at the use of capital,strategies and financial forecasts. The resul
ts of this study show that companies in Rwanda have adopted the financial discount
system, although there are still some inconsistencies in the recognition, as it is not c
orrect for most companies to still use the discount rate to reduce revenue.

(Donaldson and Davis 2019) add that some people feel satisfied in jobs that are diff
icult for them and/or gain the trust of colleagues and managers to support their decisi
ons. At its core, control theory is about how people rank their social needs, such as b
eing recognized and valued by their peers and superiors. Similar to job compensatio
n or compensation, "these needs help align people with the goals of the organization.
" If the organization maintains good relationships with stakeholders, including the loc
al community, people will want to decide to identify with the organization as it will hel
p their social relationships. If people have relationships high on their needs lists, it wil
l help them work harder to achieve the organization's goals.

(Mubashar and Tariq 2019) surveyed 200 nonfinancial companies listed on the Paki
stan Stock Exchange with a 35% response rate. Most of the listed companies in Paki
stan were found to use NPV, ARR,and PI for budgeting. Among these DCF methods,
NPV is the most common capitalization method (61.4% of surveyed companies alwa
ys use NPV). Similarly, 27% of companies always use ARR, but interestingly, all com

22
panies surveyed use ARR and NPV as secondary criteria.
Similarly, the WACC forecast uses a weighted target cost and a capital cost model (
with added risk) to determine the cost of capital. Sensitivity analysis and scenario an
alysis are important methods for risk assessment; however, the actual use of these o
ptions is very low despite their benefits.

(V.K Saxena and VashistC. D. 2019), Essentials of Financial Management, New De

lhi: Sultan Chand & Sons Educational Publishers, the financial section of this book c
overs all educational goals. It helps students, investors, and researchers understand
the meaning of capital investment, the selection process for projects, various strategi
es, and their limitations in the process.

(Alain et al. 2018) reviewed 41 companies in Barbados. This study shows that comp
anies in Barbados are less able to use capital in project selection. Most of the respon
dents listed PBM as their preferred method of financing because of its simplicity, eas
e of calculation, low effort,and flexibility.The results also show that most organization
s are using "realsite" and non-traditional budgeting methods to aid decision-making.
Professional accountants are more likely to use NPV and screen sentiment than lay
accountants, although the use of capital employed by different activities is not statisti
cally different.

(Yohanes,Debela,&Shibru,2018)Investing in assets is a very important activity as it

affects profitability. The concept of capital expenditure was first published in the 1960

(J. Scott Armstrong 2018) People who make environmental decisions must not onl
y act now, but also anticipate the future. They should do this for at least two reasons.
First, if they are looking for an alternative way not to work, they need to consider wh
ether the current change will be beneficial or negative in the future. Second, if they d
o intervene, they must evaluate their success in terms of future trends and their impa
ct on humans and the natural environment.Prediction, by which I mean the precise pr
ocess of determining what will happen in the future, can be helpful above all else. Se

23
veral factors affect the choice and use of estimation methods. First, the focus on envi
ronmental forecasting is often long-term, that is, large-
scale change.Second, perhaps the environment interacts and creates new concerns
Intervention can also lead to undesirable changes. This section discusses predictive
methods for environmental decision,making, shows when they are useful, explains th
e evidence for the effectiveness of each method,and provides comments. An importa
nt consideration is whether the estimation method is designed to measure the impact
of the intervention. The chapter then explores the issues involved in offering good pr
edictions. Finally, it describes the evaluation made to determine whether the most ap
propriate estimator was used.

(Weerakun Banda Yatiwelle Koralalage 2018), The Use of Corporate Finance in L

arge Business: Evidence from Sri Lanka, International Journal of Arts and Business,
3(9 p. 77’84. This research paper explores the use of financial resources & exploresv
arious variables and relationships related to the use of financial resources of big-
name companies in Sri Lanka. As a result of the research, it has been determined th
at present value, rate of return, payback period, return value ,and profit margin are u
sed in the evaluation of the investment.

(AlMutairi et al. 2018) Methodology,Creswell We recommend using different metho

ds to address the "what" and "how" topics.

(Ghahremani M. et al. 2018), Four’Year Capital Budgeting Technology Options: Foc

using on Real Options, InternationalJournal of Business and Management, 7(17), p.
98/117, This article aims to examine and analyze financial resources in developing a
nd technological countries. developing countries according to the best results in mac
hine selection.

(Khan M.Y. thiab Jain P. K. 2018), Accounting for Managers: Texts, Issues and Cas
es. New Delhi: McGraw-Hill Publishing Ltd.

24
The financial section of this book discusses principles and ideas, their importance, i
mportance, difficulty, causes, and types.

(Batra and Verma ,2017) examined the responses of 77 Indian companies listed on
the Mumbai Stock Exchange. Their evidence shows that firm managers often follow t
he investment strategy suggested by learning theory.

For NPV and IRR, the DCF methods and riskadjusted sensitivity analysis are the mo
st popular. Executives also prefer WACC as their cost of capital.

However, there are theoretical and practical differences in the use of real options, adj
usted returns, and other specifications.

(Baker et al.2017) According to a survey of 75 listed companies in Morocco, 64% of

companies use IRR, 63% ARR,and 53% PBM, but NPV is the most popular method i
n Morocco. Some companies respond by using real options when making investment
decisions. They tend to use less efficient methods than their counterparts in developi
ng countries to seize investment opportunities and calculate investment costs. The m
ost common methods used to estimate the cost of equity for companies listed on the
Chittagong Stock Exchange are CD plus risk premium and market return on equity.

(Vongai Maroyi & Huibrecht Margaretha Van DP 2017), Analysis of Accounting Pr

actices of a South African Stock Exchange Listed Mining Company, African Journal
of Business Management, 6(32), p. 9279/9292, Authors discuss potential sources of
investment. South African mines listed on the Stock Exchange (JSE) in Johannesbur
g and their reasons for use were investigated. The main purpose of this study is to in
vestigate the most efficient investment methods.

25
(Agarwal N.P. and Mishra B.K. 2017), Capital Budgeting, Jaipur: RBSA Publishers,
This book is divided into 9 chapters and covers capital budgeting, planning, certainty
,and an introduction to risk uncertainty.It covers the meaning and definition of capital
expenditure, its characteristics, importance, types and methods. Project analysis an
d design is also well explained.

(Gupta Sanjeev et al,2017), "Capital Budgeting Practices in Punjab Companies", IC

FAI Journal of Applied Finance, Lub Ob Hlis 2007, Vol. 1. 13, XIV, p.57/701 tries to fi
nd out what capital resources are used by the business in Punjab anfactors such as t
he size of the capital investment, age and stability, education and experience of the c
apital CEO, and other influences on budgeting decisions.

26
JOURNALS:

A Review of the Literature on Capital Budgeting Appraisal: Past, Present, and

Future :

Abstract:

This chapter provides a historical appraisal of the development of current Capital

Investment budgeting practices and reviews Capital Investment budgeting academic
research. In the late eighteenth and early nineteenth centuries, the industrial revolution
was instrumental in creating demand for Capital Investment budgeting processes and
techniques. Academic research, beginning in the late 1940s and early 1950s, is
categorized by its focus on appraisal techniques, individual decision-maker effects,
organizational issues, and environmental factors. Experimental, analytical, agency-
based, survey-based, and case-based research is reviewed. The chapter concludes
with a compilation of issues identified by academic research and a set of questions
that have not yet been addressed.

Capital budgeting Theory and Practice: A Review and Agenda for Future
Research:

Lingesiya Kengatharan1 Department of Financial Management, University of Jaffna,

Sri Lanka

The main purpose of this study is to identify inconsistencies in current financial resou
rces and practices over the past two years, thereby creating spring for future scholar
ships. Research studies network and iCat search are used to find research papers p
ublished in the last 20 years.

Four criteria were used to select research articles: image search, publication in Engli
sh, publication in peer,reviewed journals, and full research articles.

27
This document is available in OneFile (GALE), SciVerse ScienceDirect (Elsevier), In
forma - Taylor & Francis (CrossRef), Wiley (CrossRef), Business (JSTOR), Arts & Sc
iences ( JSTOR), Proquest, MEDLINE ( NLM), and Wiley Online Library .
To identify these, thematic literature was searched. Recent studies provide evidence
of the increasing use of multiple sources of investment capital as well as capital inve
stment sources for corporate risk. However, it reflects the differences between devel
oped and developing countries.

In addition, the factors affecting the choice of financial resources are analyzed and i
nconsistencies in financial behavior and research methods are emphasized. More ex
tensive research is needed to build a more reliable and informed understanding of th
e use of financial resources in chaotic environments.The design of this work was pai
nstaking and contributed over the past two decades by addressing both known and u
nknown sources of capital investment. The relationship benefits the experts, experts,
policymakers and stakeholders in the company.

28
 CHAPTER III

RESEARCH METHODOLOGY

3.1 METHODOLOGY:

There are many financial analysis methods that can be used to determine the econo
mic value of an investment. Capital Budgeting is the process by which investors
determine the value of a potential investment project. The three most common
approaches to project selection are the Payback Period (PB), Accounting Rate of
Return (ARR), and Net Present Value (NPV).

3.2 RESEARCH DESIGN:

A research design is a conceptual framework for a research study; establishes stand

ards for data collection, measurement and analysis. Research design is the collectio
n of data in accordance with the purpose of education and the functioning of the proc
ess and the preparation of events for analysis.

DESCRIPTIVE RESEARCH:

Descriptive research determines the relationship between two or more variables. It

includes surveys and fact-finding inquiries of different kinds. The major purpose of
descriptive research is the description of the state of affairs as it exists at present. The
main characteristics of this method are that the researcher has no control over the
variables, he can only report for the happening. The method of research utilized in
descriptive research is a survey method of all kinds including the comparative method
and correlation method.

29
3.3 SOURCES OF THE DATA:

There are two types of data to be collected,

 Primary data
 Secondary data

Primary data are those which are collected afresh and for the first time and thus
happen to the original in character.

Secondary data, The data that are already available, It refers to the data which have
already been collected and analyzed by someone else. The secondary data was
recollected from the company profile and website. Mostly the data used for the project
are secondary data.

3.4 Method Used For The Study:

Payback Period Method (PBP)

The payback period is also called a payoff or payout period method. That
represents the period in which the total investment in permanent assets payback itself.
The method is based on the principle that every capital expenditure pays itself back
within a certain period out of the additional earnings generated from the capital assets.
Thus, it measures the period of time for the original cost of the project to be recovered
from the additional earnings of the project itself. Under this method, various
investments are ranked according to the length of their payback period in such a
manner that the investment with a shorter payback period is preferred to the one which
has a longer payback period. It is the exact amount of time required for a firm to
recover its initial investment in a project as calculated from cash flows.

30
The payback measures the length of time it takes a company to recover in cash its
initial investment. This concept can also be explained as the length of time it takes the
project to generate cash equal to the investment and pay the company back. It is
calculated by dividing the capital investment by the net annual cash flow. If the net
annual cash flow is not expected to be the same, the average of the net annual cash
flows may be used.

The payback method is a one-sidedly derived number which tells a small amount
about a project's beginning phase, but it tells one close to nothing about the full lifetime
of the project. The effortlessness of calculating payback can possibly promote
carelessness, especially in the failure to incorporate all the costs linked with investing
in a project, such as training and maintenance. The payback method does not account
for the time value of money either, and is therefore considered an unsophisticated
Capital Investment budgeting technique. Even though the payback method has these
cons associated with it, the simplicity of the method can allow it to be used as a filter
for those projects which should go on to a more in-depth method, such as those
explained below. If a project is not recommended based on the payback method, then
chances are pretty high the project should not even be considered for the other
methods.

Accounting Rate of Return (ARR)

The Accounting Rate Of Return (ARR) is a formula that reflects the Percentage rate
of return expected on an investment or asset, compared to the initial Investment’s cost.

The Accounting Rate Of Return (ARR) formula divides an asset’s average revenue by
the company’s initial investment to derive the ratio or return that one may expect over
the lifetime of an asset or project.

The Accounting Rate of Return does not consider the time value of money or cash
flow which can be an integral part of maintaining a business.

31
The method takes into account the earnings expected from the investment over their
whole life. It is known as the Accounting rate of return method for the reason that under
this method, the accounting concept of profit is used rather than cash inflows.

According to this method, various projects are ranked in order of the rate of earnings
or Accounting rate of returns. The project with the higher rate of return is selected as
compared to the one with a lower rate of return. This method can also be used to make
decisions as to accepting or rejecting the proposal.

Net Present Value Method (NPV)

This is a modern way of evaluating investment ideas. This method takes into account
the time value of money and tries to calculate ROI by taking time into account. Pres
ent value of income and expenses incurred over the life of the project Determine the
present value each year by subtracting the cash flow from the company's cost of capi
tal or interest rate.

Net Present Value measures the difference between the present value of future cash
flows and the cash flows from a project at a particular time. With the help of the curr
ent price, we can calculate the investment that is expected to yield a good income.
The NPV method takes into account the time value of money, hence it is known as a
complex capital investment financial process. So everything is in today's money. For
example, if you want to earn $300,000 in 5 years, it would be $155,811 in today's mo
ney.

This method is easier than the manual IRR method. Also, the NPV method offers mo
re solutions as it allows the average amount of company revenue to be reinvested in
the company's cost of capital than the higher rates suggested by the IRR method.
The NPV method is theoretically the preferred method for capital investment financin
g methods. (p. 429-430)

NPV is considered inconsistent as it does not measure interest, income,

and other benefits associated with the amount invested. This means that NPV meas

32
ures the number of dollars expected to be received from the offer. Generally, financia
l managers want to see results measured over an annual return period, such as the I
RR method.To calculate the net present value (NPV), we first estimate the future fina
ncial needs of the project in question. The next step is to calculate the present value
of the cash flows using the discounted cash flow (DCF) method. When we have an e
stimate, we estimate NPV as the difference between the present value of the cash fl
ows and the cost of capital.

Net Present Value Measurement The difference between the present value of future
cash flows for a given project and the cash outflows from the project time. With the h
elp of the current price, we can calculate the investment that is expected to yield a g
ood income.

To calculate the net present value (NPV), we first estimate the future financial needs
of the project in question.

The next step is to calculate the present value of the cash flows using the discounted
cash flow (DCF) method. When we have an estimate, we estimate NPV as the differ
ence between the present value of the cash inflows and the cost of capital.

ADVANTAGES AND DISADVANTAGES OF CAPITAL INVESTMENT

BUDGETING TECHNIQUES

Advantages

The payback method is popular with business analysts for several reasons. The first
is its simplicity. Most companies will use a team of employees with varied backgrounds
to evaluate capital projects. Using the payback method and reducing the evaluation to
a simple number of years is an easily understood concept. Identifying projects that
provide the fastest return on investment is particularly important for companies with
limited cash that need to recover their money as quickly as possible. Managers use
the payback method to make quick evaluations of projects with a small investment.

33
These small projects do not necessarily involve a group of employees, and it is not
necessary to conduct rigorous economic analysis.

Disadvantages

The payback method ignores the time value of money. The cash inflows from a project
may be irregular, with most of the return not occurring until well into the future. A
project could have an acceptable rate of return but still not meet the company's
required minimum payback period. The payback model does not consider cash inflows
from a project that may occur after the initial investment has been recovered. Most
major capital expenditures have a long life span and continue to provide income long
after the payback period. Since the payback method focuses on short-term profitability,
an attractive project could be overlooked if the payback period is the only
consideration.

Capital Budgeting by Payback Period

The most-used method of Capital Investment budgeting is determining the payback

period. The company establishes an acceptable amount of time in which a successful
investment can repay the cost of capital to make it. Investment alternatives with too
long a payback period are rejected. Investment alternatives inside the payback period
are evaluated on the basis of the fastest payback. The payback method disadvantages
include that it does not account for the time value of money.

Net Present Value Capital Investment budgeting

In net present value Capital Investment budgeting, each of the competing alternatives
for a firm’s capital is assigned a discount rate to help determine the value today of
expected future returns. Stated another way, by determining the weighted average
cost of capital over time, also called the discount rate, a company can estimate the
value today of the expected cash flow from an investment of capital today. By
comparing this net present value of two or more possible uses of capital, the
opportunity with the highest net present value is the better alternative.

34
A disadvantage of the net present value method is the method's dependence on
correctly determining the discount rate. That calculation is subject to many variables
that must be estimated.

The Accounting Rate of Return Method

An advantage of Capital Investment budgeting with the internal rate of return method
is that the initial calculations are easier to perform and understand for company
executives who may not have a financial background. Excel has an ARR calculation
function.

The disadvantage of the ARR method is that it can yield abnormally high rates of return
by overestimating the value of reinvesting cash flow over time.

TOOLS USED FOR ANALYSIS:

1. Payback Period (PBP)

2. Average rate of return (ARR)
3. Net Present Value (NPV)

35
 CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

4.1 PAYBACK PERIOD (PBP):

The payback measures the length of time it takes a company to recover in cash its
initial investment. This concept can also be explained as the length of time it takes the
project to generate cash equal to the investment and pay the company back. It is
calculated by dividing the capital investment by the net annual cash flow. If the net
annual cash flow is not expected to be the same, the average of the net annual cash
flows may be used.

Initial Investment
Payback Period =
Cash Inflow per Period

CALCULATION OF ANNUAL CASH INFLOW

Year 2018 2019 2020 2021 2022

Total Sales 160631097 195257498 206249626 217738195 237163352

0 3 9 6 3

Less: Costs 155588500 181561415 196132425 206819641 228601771

7 7 2 5 0
EBDT 50425963 136960826 101172022 128327364 85615818

LESS: - 967090 - 10393113 12541810

Depreciatio
n or other
exceptional
items

36
 50425963 135993136 101172022 117934251 73074008
EBT
LESS: Tax 17100966 100752605 (22354952) 38433857 26851541

PAT 33324997 35241131 123526969 79500394 46222467

(Annual
Cash
Inflow)

Payback Period Analysis

Year Initial investments Annual cash Inflow Payback period

2018 72368453 33324997 2.17

2019 175080399 35241131 4.97

2020 180236203 123526969 1.46

2021 46246000 79500394 0.58

2022 46246000 46222467 1.00

INTERPRETATION

The shorter the payback period, the sooner the company recovers its cash investment.
Whether a cash payback period is good or poor depends on the company's criteria for
evaluating projects. From the above, it is inferred that the company have its highest
payback in 2019 with 4.97 or 5 years.

The current year (2022) PBP is found to be 1 year. This shows that the company
recovers its investment in 1 year.

37
 Payback Period Analysis

4.97
5
4.5
4
3.5
3
2.5 2.17
2
1.5 1.46
1
0.5 1
0.58
0
2018
2019
2020
2021
2022

4.2 ACCOUNTING RATE OF RETURN (ARR):

ARR method uses accounting information as revealed by financial statements, to

measure the profitability of the investment proposals. It is also known as the return
on investment. Sometimes it is called the Average rate of return. (ARR)

PAT

Accounting Rate of Return (ARR) = ------------------------------------------- * 100

Original Investment

38
 Year PAT Initial Accounting Rate
investments of Return

2018 33324997 72368453 0.46

2019 35241131 175080399 0.20

2020 123526969 180236203 0.68

2021 79500394 46246000 1.72

2022 46222467 46246000 1.00

Inference:

The chart shows that in the year 2019, the company had a lower expected rate of
return than the minimum rate so the investment in the particular project can be
reduced. In the year 2021, the project has a higher rate of return than the minimum
rate. A higher rate of return indicates that investment made in the particular year has
a higher cash inflow in the future. The accounting rate of return for the year 2022 is
reduced to 1 year.

39
 ACCOUNTING RATE OF RETURN (ARR)

1.8
1.72
1.6

1.4

1.2

1
1
0.8
0.68
0.6 0.46
0.4
0.2
0.2
0
2018
2019
2020
2021
2022

4.3 NET PRESENT VALUE (NPV):

Considering the time value of money is important when evaluating projects with
different costs, different cash flows, and different service lives. Discounted cash flow
techniques, such as the net present value method, consider the timing and amount of
cash flows. To use the net present value method, you will need to know the cash
inflows, the cash outflows, and the company's required rate of return on its
investments. The required rate of return becomes the discount rate used in the net
present value calculation.

40
Formula

Present value = Cash flows * Present value of Re. 1 @ 10% discount using present
value table

Net present value = Present value of all cash inflows – present value of initial
investment.

Decision Rule:

Accept: NPV > Zero

Reject: NPV< Zero

Net Present Value Analysis:

Year PAT Discounting present Present Value Present value

value of Net Cash of Initial
Table Flows investment
(Present value of Re.1
@ 10 %)
2018 33324997 0.909 30292422.27 65782923.78
2019 35241131 0.826 29109174.21 144616409.6

2020 123526969 0.751 92768753.72 135357388.5

2021 79500394 0.683 54298769.1 31586018
2022 46222467 0.621 28704152.01 28718766
235173271.3 406061505.8
TOTAL =

41
Calculation:

Present value of all cash flows 23, 51, 73, 271.3

Less: Present value of all Initial Investment 40, 60, 61,505.8

Net Present Value (20118-12) (17, 08, 88,234.5)

Interpretation:

The above table clearly indicates that the Net Present Value for the five years
from 2018 to 2022 is (17, 08, 88,234.5)

A negative NPV indicates that the project will probably be unprofitable and
therefore should be adjusted, if not abandoned altogether.

NPV enables a manager to consider the time value of money it will invest. This
concept holds that the value of money increases with time because it can always earn
interest in a savings account.

Therefore, any other investment of that money must be weighed against how
the funds would perform if simply deposited and saved.

42
 CHAPTER V

FINDINGS, SUGGESTIONS, AND CONCLUSION

5.1 FINDINGS:

 The current year (2022) PBP is found to be 1 year. This shows that the company
recovers its investment in 1 year.

 From the above, it is inferred that the company have its highest payback Period
in 2019 with 4.97 or 5 years.

 The value of the Payback Period (2018: 2.17), (2019: 4.97), (2020: 1.46), (2021:
0.58), (2022: 1.00).

 A negative NPV indicates that the project will probably be unprofitable and
therefore should be adjusted, if not abandoned altogether.

 The average rate of return for the year 2022 is reduced to 1 year the Net
Present Value for the five years from 2018 to 2022 is (17, 08, 88,234.5).

 A negative NPV indicates that the project will probably be unprofitable and
therefore should be adjusted, if not abandoned altogether.

 The Accounting rate of return for the year 2022 is reduced to 1 year.

 The value of the Accounting Rate of Return (2018: 0.46), (2019: 0.20), (2020:
0.68), (2021: 1.72), (2022: 1.00).

 The average rate of return for the year 2021 is reduced to 1 year the Accounting
Rate of Return for the five years from 2021 is (1.72).

43
5.2 SUGGESTIONS:

1. The shorter the payback period, the sooner the company recovers its cash
investment. Whether a cash payback period is good or poor depends on the
company's criteria for evaluating projects.

2. A higher rate of return indicates that investment made in the particular year
has a higher cash inflow in the future.

3. A negative NPV indicates that the project will probably be unprofitable and
therefore should be adjusted, if not abandoned altogether.

4. NPV enables a manager to consider the time value of money it will invest.
This concept holds that the value of money increases with time because it
can always earn interest in a savings account.

5. Therefore, any other investment of that money must be weighed against

how the funds would perform if simply deposited and saved.

6. The PAT trend is decreasing so the company should take necessary steps
to increase the profit of the company by decreasing the expenses and
debtors

7. The EBIT trend is decreasing in 2022 this may be due to an increase in

expenses and high interest. So the company should take necessary actions
to decrease expenses.

44
5.3 LIMITATION OF THE STUDY:

• Some company information is confidential

• The training period is only ten years.
• This study is based on the company's historical data.
• This study focuses only on capital investments made by companies.

All studies focus on different capital investments. Although this technique has its adv
antages, there are some computational problems and disadvantages when using this
technique. While the NPV method is easy to use when cash flow is known, it is diffic
ult to obtain a cash flow estimate due to uncertainty in practice.

Discount rate It is also difficult to measure the discount rate in practice. Also, the NP
V approach should be used with caution when considering other projects with unequ
al lifestyles or financial constraints. Under the NPV principle, the valuation of capital i
s not independent of the discount rate.

Similarly, the payback method is not an appropriate measure of the benefits of the in
vestment as it does not include the total revenue of the project. This approach does
not include the revenue model.

There is no reasonable basis for setting a maximum payment period. This is usually
a decision. The return is inconsistent with the purpose of the market value of the com
pany's stock. The stock price does not depend on the payback period of the investm
ent.

45
5.4 CONCLUSION:

Capital budgeting or investment evaluation is the planning process used to determin

e the organization's long,term investments such as new machinery, replacement ma
chinery, new factories, new products, and research and development will be worth fo
llowing.

Capital or investment finance, expenditure. It is a process used to determine whether

a company's investment or project is worth making. The process of allocating funds t
o fixed assets is important because they are usually long,lived and cannot be easily r
ecovered all at once.

So we can say that this is an asset allocation process where management has to us
e financial resources to determine which activity will generate more profits over time.

It is clear from this study that capital investment mainly involves evaluating the value
of investment capital based on estimates of income and expense. This study clearly
shows that the efficient allocation of funds is the most important aspect of financial p
erformance in today's world.

Therefore, capital investment or investment decisions are very important to compani

es because they often determine their value by influencing their growth, profitability a
nd risk. Analysis of the payback period and the average rate of return concluded that
management should try to acquire capital efficiently.

46
REFERENCE:

Reference Books

 I.M.Pandey “Financial Accounting” New Delhi Publication

 S.M.Maheswari “Financial Accounting” Vikas publication
 D.Chandra Bose “Fundamentals of Financial Management”
 Uma Sekaran Research Methods for business john wiley & sons inc
 M.Y.Khan & p.k.jain “Financial Management”

Website

 www.yahooanswer.com
 http://campus.murraystate.edu/academic/faculty/lguin/FIN330/Financial%2
0Leverage.htm
 http://en.wikipedia.org/wiki/Standard_deviation
 http://www.investopedia.com/terms/c/correlationcoefficient.asp
 http://www.yourarticlelibrary.com/financial-management/theories-of-capital-
structure-explained-with-examples-financial-management/29398/
 https://www.boundless.com/finance/textbooks/boundless-finance-
textbook/capital-structure-13/introducing-capital- budgeting -104/capital-
structure-overview-and-theory-446-3785/
 http://www.academia.edu/7134744/Theories_of_Capital_budgeting_Analys
is_of_Capital_ budgeting _Determinants
 http://www.zenwealth.com/businessfinanceonline/RA/RatioAnalysis.html
 https://www.scribd.com/doc/30500131/6/Features-of-Financial-Analysis
 http://www.nyu.edu/classes/keefer/waoe/roshanb3.pdf
 http://steconomice.uoradea.ro/anale/volume/2022/v3-finances-banks-and-
accountancy/53.
 http://en.wikipedia.org/wiki/Trade-off_theory_of_capital_budgeting

47
BALANCE SHEET:

Consolidated five years Balance Sheet of FLSMIDTH PRIVATE LIMITED

Income and Expenditure

PARTICULARS 2018 2019 2020 2021 2022

Rs. Crore (Non-Annualised)

Total income 10.229 10.642 12.177 13.944 12.793

Sales 9.713 10.152 11.685 13.316 12.312
Industrial sales 9.713 10.152 11.685 13.316 12.312
Income from non-financial 0 0 0 0 0
services
Income from financial services 0.488 0.461 0.47 0.601 0.406
Interest 0.18 0.153 0.135 0.174 0.255

Dividends 0.19 .222 .25 0.098 .142

Treasury operations 0.118 0.086 0.085 0.329 0.009
Other income 0.017 0.012 0.012 0.014 0.055
Prior period income & 0.011 0.017 0.01 0.013 0.02
extraordinary income
Change in stock -0.029 0.189 0.383 -0.316 -0.075

Total expenses 9.379 9.942 11.677 12.893 11.824

Raw material expenses 4.161 4.423 5.596 6.715 5.205
Packaging expenses 0 0 0 0 0
Purchase of finished goods 0 0 0 0 0
Power, fuel & water charges 0.863 0.709 0.708 0.855 1.123
Compensation to employees 1.006 1.123 1.264 1.418 1.598

48
Indirect taxes 1.048 1.254 1.356 1.054 0.89
Royalties, technical know-how 0 0 0 0 0
fees, etc.
Lease rent & other rent 0.011 0.011 0.011 0.015 0.016
Repairs & maintenance 0.234 0.218 0.242 0.265 0.305
Insurance premium paid 0.031 0.027 0.02 0.014 0.029
Outsourced mfg. jobs (incl. job 0.224 0.346 0.489 0.351 0.308
works, etc.)
Outsourced professional jobs 0.005 0.008 0.007 0.01 0.01
Directors' fees 0.002 0.002 0.002 0.002 0.002
Selling & distribution expenses 0.576 0.56 0.674 0.727 0.896
Travel expenses 0.153 0.177 0.187 0.208 0.186
Communication expenses 0.042 0.039 0.039 0.045 0.041
Printing & stationery expenses 0 0 0 0 0
Miscellaneous expenses 0.314 0.306 0.335 0.444 0.404

Other operational exp. of indl. 0 0 0 0 0

Enterprises
Other oper. exp. of non-fin. 0 0 0 0 0
service enterprises
Share of loss in 0 0 0 0 0
subsidiaries/JVs,etc.
Lease equalisation adjustment 0 0 0 0 0
Loss on securitisation of 0 0 0 0 0
assets/loans
Fee based financial service 0.015 0.017 0.022 0.025 0.021
expenses
Treasury operations expenses 0 0 0 0 0.064
Total provisions 0 0 0.003 0.025 0
Write-offs 0.006 0.007 0.011 0.004 0.001
Less: Expenses capitalized 0.026 0.03 0.074 0.072 0.029
Less: DRE & expenses charged 0.024 0 0.03 0.047 0.036
to others

49
Prior period & extraordinary 0 0.005 0.011 0 0.003
expenses
Interest paid 0.015 0.012 0.023 0.045 0.052
Financial charges on 0 0 0 0 0
instruments
Expenses incurred on raising 0 0 0 0 0
deposits/debts
Depreciation 0.393 0.396 0.416 0.375 0.35
Amortisation 0 0 0 0 0
Provision for direct taxes 0.33 0.332 0.365 0.415 0.385
PAT 0.821 0.889 0.883 0.735 0.894

PBDITA 0.1559 0.1629 1.687 1.57 1.681

PBDTA 0.1544 0.1617 1.664 1.525 1.629
PBT 0.1151 0.1221 1.248 1.15 1.279

50
 Investments Report

PARTICULARS 2018 2019 2020 2021 2022

Rs. Crore (Non-Annualised)
-
Investments 3.347 3.255 2.962 2.899 2.91
In equity shares 0.397 0.401 0.412 0.417 0.42
Group companies 0.223 0.223 0.223 0.219 0.219
Other than group companies 0.174 0.178 0.189 0.198 0.201
In debt instruments 0.776 0.636 0.565 0.352 0.116
Other than government 0.775 0.635 0.564 0.351 0.116
debentures/bonds
Other than group companies 0.775 0.635 0.564 0.351 0.116
In bonds/debentures of 0.001 0.001 0.001 0.01 0
government/local bodies
In mutual funds 2.159 2.225 1.99 2.161 0.238
Other than group companies 2.159 2.225 1.99 2.161 2.38
In others 0.024 0 0.004 0 0
Less: Provision for diminution in 0.009 0.007 0.01 0.032 0.006
value of investments

Book value of quoted investments 0.288 0.292 2.292 2.328 2.55

Market value of quoted investments 0.415 0.426 2.065 0.831 0.859
Marketable securities 2.447 2.517 2.292 2.328 2.55

51
 PARTICULARS 2018 2019 2020 2021 2022

Rs. Crore (Non-

Annualised)
-
PBDITA 1.559 1.629 1.687 1.57 1.681
Depreciation 0.393 0.396 0.416 0.375 0.35
Amortisation 0 0 0 0 0

PBIT 1.166 1.233 1.271 1.195 1.331

Interest paid 0.015 0.012 0.023 0.045 0.052
Financial charges on 0 0 0 0 0
instruments
Fee based financial 0 0 0 0 0
services expenses

PBT 1.151 1.221 1.248 1.15 1.279

Provision for direct tax 0.33 0.332 0.365 0.415 0.385
Corporate tax 0.336 0.355 0.35 0.401 0.42
Deferred tax 0 0 0 0 0
Less: Deferred tax assets 0.026 0.039 0.005 0.005 0.035
/ credit
Other direct tax 0.02 0.016 0.02 0.019 0
Fringe benefits tax 0.02 0.016 0.02 0.019 0

PAT 0.821 0.889 0.883 0.735 0.894

Prior period & extra- 0.011 0.017 0.01 0.013 0.02

ordinary income
Prior period & extra- 0 0.005 0.011 0 0.003
ordinary expenses

52
Net prior period & -0.011 -0.012 0.001 -0.013 -0.017
extraordinary transactions

PBDITA net of P&E 1.548 1.17 1.688 1.557 1.664

PBIT net of P&E 1.155 1.221 1.272 1.182 1.314
PBT net of P&E 1.14 1.209 1.249 1.137 1.2.62
PAT net of P&E 0.81 0.877 0.884 0.722 0.877
Distribution of profits
(%)
PBDITA 100 100 100 100 100
Depreciation & 2.5208467 2.43093923 2.46591583 2.38853503 2.08209399
Amortisation
Financial charges 0.096215523 0.073664825 0.136336692 0.286624204 0.309339679
Tax 2.1167415 2.03806016 2.16360403 2.6433121 2.29030339
PAT 5.26619628 5.45733579 5.23414345 4.68152866 5.31826294

Non—provisions 0 0 0 0 0
Diminution in 0 0 0 0 0
investement
Sundry debtors 0 0 0 0 0
Loans & advances 0 0 0 0 0
including NPAs
Loans & advances to 0 0 0 0 0
group cos.
Interest expenses 0 0 0 0 0
Power expenses 0 0 0 0 0
Gratuity 0 0 0 0 0
Others 0 0 0 0 0

53
54